Fair Trade

Fair trade, at it's core, is a way for those at the bottom of the supply chain to earn more money and a larger percentage of the proceeds from the sale of the final product.  With most products, those who grow or create the natural resource used to make the product are the poorest and least well payed in the whole process.  While coffee farmers in Ethiopia live in poverty, corporations like Starbucks can make billion of dollars in profits selling the final product.   Many consider this to be exploitation and unacceptable, so the fair trade movement was born.

via fairtrade.net

The system works like this: a farm  or other growing organization joins a fair trade cooperative, and has to operate according to the fair trade standards of sustainability and political standards.  The fair trade organization oversees these cooperatives and ensures they act accordingly.  Distributors of the product in other countries must pay a higher price for the goods, as well as for the right to use the fair trade logo on their packaging, but may sell the product for whatever price they like.  The system tries to ensure that underprivileged farmers are not taken advantage of, however the effectiveness of fair trade is hotly debated.

The biggest criticism against fair trade is that it simply does not help those it is designed to help.  Companies can sell fair trade products at very high mark ups, but there is no regulation on what percent of the extra revenue has to go to the farmers.  Often this leads to companies making a higher profit off fair trade goods, and the growers not seeing any of that benefit- the exact opposite of what the system hoped to achieve.  Another problem is that for the cooperatives to comply with fair trade regulations is very costly, and growing organizations may end up spending more money on this than they receive from fair trade.  Other growers who are not fair trade have problems with it as well.  Because the prices are fixed for fair trade products, they can not respond to market forces. Thus, when the supply of these goods outstrips the demand, prices should fall but they cannot.  Therefore, the non fair trade farms, who can respond to market forces, see their prices fall significantly, while the fair trade prices are untouched.